New Horizons in International Business series
Edited by Jean-Louis Mucchielli and Thierry Mayer
Chapter 4: North-South integration and multinationals: the case of the automobile industry in Mexico
4. North–south integration and multinationals: the case of the automobile industry in Mexico Sylvie Montout and Habib Zitouna INTRODUCTION 4.1 In December 1992, Canada, Mexico and the USA signed the North American Free Trade Agreement (NAFTA), which came into eﬀect on 1 January 1994. It is the ﬁrst formal regional integration agreement involving both developed and developing countries. This regional integration implies the reduction and the elimination of tariﬀ and non-tariﬀ barriers, as well as a general deregulation and strengthening of competition. Restrictions on foreign direct investment (FDI) were eased and the ﬁnancial sector reformed. This new environment and, in particular, the increased exposure to foreign competition on the home market and abroad provided an important stimulus for foreign direct investment. Indeed, the bringing into force of NAFTA seems to have a positive incidence on the American investment ﬂows inwards in Mexico (Stevens, 1998). The existing theoretical literature on economic integration and FDI deals with the question of whether regional integration agreements (RIAs), by eliminating trade barriers, promote FDI ﬂows. Regional integration creates a larger market which allows some ﬁrms to grow larger and stronger than would have been possible in individual national markets. The main beneﬁts of integration is to make the region more attractive towards location, which should stimulate intra-regional FDI as well as inﬂows from the rest of the world. Norman and Motta (1996) found that increased market accessability prompts outside ﬁrms to invest in the regional block, reducing product prices, proﬁts...
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